Interesting analysis. HY definitely way too tight now, but who knows how much longer this can go on for? RE the trade itself, for new options investors this is essentially just buying $85 puts and simultaneously selling $75 puts in equal amounts? HYG currently at $88 & change now in late July so it just keeps on going up and up...

Just don't believe in the widely held thesis that rates will normalize. Lot's of things go bust with normalized rates, including US government. Just don't see Fed letting that happen short of huge jump in labor and commodity inflation

Thanks Cyril . Completely agree with your thesis. The timing of course is going to be tricky. The tenured professors at the CB's are not keen on letting the punch bowl go empty. Need the fixed income markets to take away their 'printing presses'. So far, it has not happened.

I like it. I put it on a few days ago. I noted in the journal RV idea. See how it works.

we've now had two Option Trade Ideas in quick succession, all good, keep them coming I like it; but caution is required. Whilst there's a high probability of experienced Option professionals within the RVTV subscriber base able to make best use of such ideas, there also will be some that simply do not have the knowledge to manage open option positons. For those that do not have the experience e.g. knowing when to use pre-planned option trade adjustment techniques is fraught with danger even when the recommendation comes from a knowledgeable RVTV contributor. My point being a 2 min video is too short with an option trade more than just commentary on the thesis is required, a little extra time providing insight into how into how trade is structured (appreciate this particular example is actually really simple) and how an open position would likely be managed by the speaker would be desirable in any future option trade ideas

Would rather buy an atm put without spreading

The risk reward may look 5x, but the probability of achieving the max payoff for this trade is extremely low. For one, the trade is based on corporate yield structure, so rho would have implications in the option pricing. Second, you are expecting a 3 sigma move down with a long-put spread. Such a move would either warrant higher volatility to the downside, or take the full amount of time. Which is bad for three reasons: 1) given the volatility structure (breadth and monte carlo H. Vol analysis) the trade is highly improbable. 2) Given the out of money nature and the option type (put), extrinsic option premium is stripped away (theta) very quickly. This spread is entirely comprised of extrinsic value (at the moment). 3) Even if the ETF moved 3 sigmas down, the increased in implied volatility would raise the vega value which is negative for spreads, and as such, it would take longer to realize the full value of the spread even if the price moved in the desired direction. I like the fundamental analysis, but mathematically the move is unlikely... Feel free to add or retort to my comment.

Just don't believe in the widely held thesis that rates will normalize. Lot's of things go bust with normalized rates, including US government. Just don't see Fed letting that happen short of huge jump in labor and commodity inflation